China's July economic data points to further weakness in growth

Author: Nurluqman Suratman

2019/08/15

SINGAPORE (ICIS)--China’s recent slew of negative macroeconomic data for July points to further weakness in its growth outlook for this year despite the delay in the US’s implementation of the 10% additional tariffs on some of the $200bn of Chinese goods.

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Recent data for July broadly showed a slowdown in China’s industrial production, retail sales, fixed asset investment, property investment as well as the jobs market.

The country's vehicle sales also fell by 4.3% year on year in July.

“China’s economy still faces strong headwinds amid weakening domestic demand and re-escalating US/China trade tensions. Beijing cannot afford to stop policy easing yet,” Japanese brokerage Nomura said in a note.

On the petrochemicals front, shares of most major Asian producers have weakened this week, tracking global equity markets, while spot prices of base chemical feedstocks have been weighed by falling crude oil futures amid persistent fears over a global recession.

At 04:25 hours GMT on Thursday, Japan’s Mitsui Chemical was down 1.44% while refining firm and chemicals producer JXTG Holdings was 2.91% lower. The Nikkei 225 benchmark Nikkei 225 was down by 1.55%.

In Hong Kong, Sinopec Shanghai Petrochemical was 1.23% lower, tracking the 0.17% drop in the key Hang Seng Index.

In southeast Asia, Thailand-listed Indorama Ventures Ltd was 1.91% lower while PETRONAS Chemicals Group fell 1.92%.

Markets in South Korea and India are closed on Thursday for holidays.

US stocks got routed on 14 August after the US Treasury 2-year and 10-year yield curve inverted for the first time since 2007 following weak German second-quarter GDP and July Chinese data renewed fears of a global slowdown.

The negative data outweighed the optimism seen in all markets after Trump announced a delay on the imposition of new tariffs on Chinese goods.

Crude futures plunged on 14 August in response to the weekly supply statistics from the Energy Information Administration (EIA), showing a contrary-to-forecast build in crude oil inventories.

In early trade on Thursday, US crude futures were 48 cents lower at $54.89/bbl while Brent crude was down by 48 cents at $59.00/bbl.

Asian naphtha prices fell in tandem with lower crude on Thursday, reversing the sharp gains seen earlier on 14 August following Trump’s announcement.

Asia’s naphtha crack spread, a measure of the product’s refining margins dropped below the $20/tonne mark to end at $18.85/tonne as of 13 August, according to ICIS data.

This was the lowest since 19 June when the crack spread stood at $16.38/tonne.

With signs of further growth slowdown, Chinese policymakers are expected to step up their use of a mix of monetary and fiscal policy tools including measures to boost private spending and infrastructure spending in order to stabilize the economy, said Ho Woei Chen, an economist at Singapore-based UOB Group.

“We do not see a material change in outlook after US President Trump announced a delay in implementing the 10% additional tariff on some of the $300bn of Chinese goods. Despite the temporary reprieve in US-China trade tensions, more Chinese goods will still be hit with additional tariffs come 1 September,” Ho said.

Focus article by Nurluqman Suratman